Is negative gearing available to Australian expats?

As an expat, there’s so much to consider when it comes to tax and how it affects your Australian investment property, including whether negative gearing applies.

Where do we start…

Negative gearing

It’s something that we Aussies love. With the mention of negative gearing, approximately 1.3 million Australian faces light up.

So what is it? This is the short version; if your investment property costs more money to maintain than it generates in revenue (which is likely considering the price of property and the state of rental returns in Australia at the moment), your tax bill is reduced by the deductible expenses generated from your property, or the tax loss on your property. In tax and accounting jargon, that’s known as negative gearing.

But remember, I’m an expat, living and working overseas – so can I negatively gear my Australian investment property too?

If you are a non-resident who lodges an Australian tax return, the news is good for you! Under current legislation, Australian expats who are non-resident for Australian tax purposes can negatively gear property investments held in Australia. This means that you can use tax losses from your property to reduce your taxable income from other income sourced in Australia.

But what if my I don’t generate any other Australian income?

Well, there’s good news there too! If, aside from your Australian rental income, you have limited other income in Australia or none at all, and the loss generated from your investment property exceeds this, Australia’s tax legislation currently allows your tax losses to be carried forward indefinitely in your tax returns for you to use at some point in the future at the time when you generate some other Australian income down the track, (such as when your return to Australia to work, or when you sell your property and make a capital gain.

Does this apply to share investments?

Unfortunately, the good news stops here. If you are a non-resident for Australian tax purposes, sadly you won’t be able to negatively gear your share investments, even if you’ve borrowed to fund your share purchases. As an Australian tax resident, any interest paid on a loan used to fund share purchases is generally deductible. However, unfortunately for non-residents, interest expenses are not deductible and there are no other costs associated with your share investment that you can deduct.

Franked dividends and capital gains earned by a non-resident are not assessable and as since the income is not taxable, a non-resident is unable deduct interest or other expenses against their share investment income.

What you may be able to do however, is add the costs associated with your shares to the cost base of your investment portfolio to reduce future capital gains tax. But to be sure, you should check with your tax advisors to see whether you are eligible.

Any questions?

If you have any questions, feel free to contact us and we will be happy to answer them. Here at Expat Tax Services, our team are experienced in all manner of expatriate tax issues, and we’re friendly, approachable and easy to speak to. Feel free to reach out to our team today.

Shane's an Australian Chartered Accountant and Australian expat tax specialist who's also an expat himself (based in Asia). Shane's passionate about tax and legitimate tax minimisation, tax-planning and structuring, particularly as it relates to Australian expats who are often subject to high rates of tax back home in Australia.